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How Would "Amount A" Affect US Corporate Income Tax Revenue?
17 December 2021
Vladimir Starkov and Alexis Jin
In an article titled “How Would Amount A Affect US Corporate Income Tax Revenue?,” published in Tax Notes International, NERA Director Dr. Vladimir Starkov and Consultant Alexis Jin discuss the impact of the Amount A regime on US corporate income tax revenue estimated using the sources of information available to private non-governmental researchers. The general outline of the two-pillar taxation system, which includes Amount A as a part of Pillar One, was agreed upon in October 2021 by the Inclusive Framework delegates who tackled tax challenges arising from economic globalization and digitalization. The agreement on the two-pillar design principles was endorsed by the G20 leaders and supported by all OECD members.
To calculate the net impact of Amount A on US tax revenue, Dr. Starkov and Ms. Jin developed their own methodology that involves the following steps:
- Computing the reallocable residual profit (RRP) of all MNEs in the scope of the Amount A regime;
- Calculating the RRP allocable to the United States based on the information on the sales of in-scope MNEs in the US market;
- Estimating the RRP currently taxed in the United States; and
- Calculating the net impact of the Amount A regime by taking the difference between the amounts calculated in steps two and three above.
The authors found that the pharmaceutical industry may be contributing the largest share of Amount A revenues to the US Treasury. In contrast, the technology, telecommunication, consumer cyclicals, and industrial sectors are expected to cede tax bases offshore.
The authors calculated that had the Amount A regime been in place in 2020, the United States would have seen a tax base increase of about $5 billion, resulting in about a $1 billion increase in corporate income tax revenue, which is a rather modest impact. This finding agrees with the US Treasury’s position that the United States will be roughly revenue-neutral under the Pillar One tax rules.